Housing credit growth will ease further, according to a recent housing and mortgage report
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Australian home prices are predicted to drop by an additional 5% in 2019 before above-trend GDP growth and strong net migration steady prices in 2020, according to the 2019 Global Housing and Mortgage report by financial information services agency Fitch Ratings.
The report said the 6.7% peak-to-trough decline in home prices, as of December 2018, has been driven by lower investor demand, which reflects the macro-prudential limits on interest-only and investment lending, as well as tighter enforcement and lending standards.
Price declines are expected to continue at a similar pace this year in Sydney and Melbourne, where an 11.1% and a 7.2% peak-to-trough decline occurred respectively as of December 2018. Properties belonging to the most expensive quartile experienced the biggest drop, with a 9.5% fall.
More delayed payments
The report forecasts arrear loans for over 90 days to slightly increase to 70bp by 2020. Owned properties will take longer to sell as house prices drop, extending the delinquency of loans. Early-stage mortgage arrears, normally within 30 to 90 days, are expected to generally stabilise in 2019 at 60bp despite lenders modestly raising mortgage rates for investment and interest-only loans with no policy rate increases.
Mortgage performance will be sustained by the slowing yet solid economic growth, falling unemployment, and gradually increasing policy and mortgage rates. Risks will remain based on the report’s highest household-debt-to-GDP ratio of 121% as of 2Q 2018.
Easing credit growth
According to the report, “housing credit growth is projected to ease further in 2019 to 3.5% from 5.1% year-on-year growth in October 2018”. This has been caused by the tightened macro-prudential limits, and a more conservative view of regulatory guidelines for mortgage servicing in the wake of the royal commission’s investigation. Fitch Ratings believes the commission’s final recommendation, due out in February, could further lower credit availability.
Investment loan growth of investment loan origination is now limited to 10% (introduced in 2014 and removed in 2018 for lenders who can prove they’ve met regulatory requirements for the last six months), while new loans of interest-only origination is limited to 30% (introduced in 2017 and removed in January 2019 for lenders who have met regulatory requirements for the last six months), and by foreign investor levies and state government taxes.
